Sovereign Wealth Funds And The Price Of Oil
The rise of sovereign-wealth funds and the trillions of dollars accumulated by Asian exporters and petroleum producers is prompting growing anxieties around the world, with increasing concerns that the funds will be used as financial weapons. The issue and the nature of sovereign-wealth funds dominated the recent meeting of the Group of Seven finance ministers. Their concerns were highlighted by the issued statement calling on the International Monetary Fund and the World Bank to examine the structure of the funds, their transparency and accountability.
According to the Wall Street Journal the funds have $2 to $3 trillion dollars at their disposal and that could reach $10 trillion within the decade. A former chief economist of the IMF, Kenneth Rogoff, is quoted saying that at that size "they are the global financial system".
Among the current holdings other than China, oil producers stand out. The United Arab Emirates reportedly holds assets of $250 to $875 billion and their investment allocation is unknown. Saudi Arabia in excess of $250 billion, and again allocation unknown. Kuwait $160 to $250 billion investing in Arab and international markets, whatever that means. Russia according to the latest data available, $127 billion and purportedly in fixed income.
SEC Chairman Christopher Cox has speculated that government investment funds could use the "vast amount of covert information" that their spy agencies collect, making that "the ultimate insider trading tool."
The funds however should begin to be scrutinized not only over investment issues, such as China's attempt to take over Unocal or Dubai's efforts to invest in American ports, but also as to deployment of their assets in commodity trading and speculation on international exchanges. This especially so as regards any attempts to manage and manipulate the price of commodities basic to their economies. To date very little has been heard on this issue.
As I have stated before with "Energy Trading Oversight Awakens..." 10.25.07, by divorcing oil trading from the physical product, which is happening on the largely unregulated international exchanges and electronic trading, the potential for mischief has been exacerbated exponentially by "sovereign-wealth funds" of petroleum producing nations with their keen interest in ever higher energy prices. This is especially so given the current trading structure of the markets that can make the identities of both buyer and seller virtually unknowable. Given Chairman Cox's musings on covert information, perhaps opening a new desk at the CIA dealing with this issue might not be such a bad idea.
As an aside, the price of oil shot up more than four dollars a barrel yesterday on the commodity exchanges. This, supposedly, because U.S. commercial inventories dropped by a greater than expected three million barrels. Inventories still stood at over 317 million barrels, and together with the Strategic Petroleum Reserve stood at 1,006,626 bbls, or some 3 million barrels less from the week before, which becomes hardly significant given the magnitude of the numbers involved. Nor, given the very high cost of oil was there much discussion that commercial users are under increasing pressure to reduce rather than increase inventories. Nor that the "shortfall" could have readily been made up with the discharge of two or three VLCC tankers, conceivably at sea and underway to American ports. Altogether, hardly a reason for a stunning $4/bbl plus increase in price unless one or more are using each and every news blip to rationalize what otherwise might too clearly come across as rote manipulation. "Sovereign-Wealth Funds" anyone?
Raymond J. Learsy is the author of the newly updated Over a Barrel- Breaking Oil's Grip on our Future
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I've got an idea. Let's develop an economy based on energy obtained from countries that fundamentally hate us. An economy that not only allows its corporations to move their productive assets to countries that hate us but give them tax incentives to do so. An economy where the citizens are encouraged to take on debt to buy things they don't need from these countries that hate us. An economy where the Government takes the retirement savings (Social Security) from the lowest 90% of the income ladder, gives it to the top 2% as tax cuts and borrows the difference from countries that hate us. An economy that is forced to sell off its productive assets to countries that hate us to pay for its consumption of imported goods from these countries. An economy that, after reducing the disparity of wealth by increasing its wealth from the bottom up has reverted to increasing the disparity of wealth to a level not seen since IMMEDIATELY before the Great Depression. An economy that has changed from the World's largest creditor Nation to the World's largest debtor Nation. An economy that is accumulating debt faster than it is growing. An economy that supports War by borrowing from countries that hate us. If this all sounds good to you then you can join the Republican Party and help support Reagan/Bushonomics, the economic game plan that has made this all possible.
I've got an idea. Let's develop an economy based on energy obtained from countries that fundamentally hate us. An economy that not only allows its corporations to move their productive assets to countries that hate us but give them tax incentives to do so. An economy where the citizens are encouraged to take on debt to buy things they don't need from these countries that hate us. An economy where the Government takes the retirement savings (Social Security) from the lowest 90% of the income ladder, gives it to the top 2% as tax cuts and borrows the difference from countries that hate us. An economy that is forced to sell off its productive assets to pay for its consumption of imported goods. An economy that, after reducing the disparity of wealth by increasing its wealth from the bottom up has reverted to increasing the disparity of wealth to a level not seen since IMMEDIATELY before the Great Depression. An economy that has changed from the World's largest creditor Nation to the World's largest debtor Nation. An economy that is accumulating debt faster than it is growing. An economy that supports War by borrowing from countries that hate us. If this all sounds good to you then you can join the Republican Party and help support Reagan/Bushonomics, the economic game plan that has made this all possible.
Please tell me how Hedge Funds engaged in the same activities--ie driving up the price of oil--is any different, in practical terms, of what this wild allegation of covert nefarious SWF activities? Isn't the price going up anyways regardless of who is bidding up the oil derivatives???
The oil market is huge! and any one player or even a conspiracy of collusion cannot move the market too much in the LONG TERM...if there is a sense of a disconnect in value, then market participants will get in and short the market, and bring the value back down. Actually, the price of oil has only been rising to reflect the parallel price of gas.
This is conspiracy stuff and totally ridiculous
Also if it were happening on a large scale, we'd see some more strength in the dollar...w
The Saudi's don't even have that big of an SWF--at least as compared with Abu Dhabi and Dubai. Not to mention the fact that we NEED this SWF money to be invested in the US instead of elsewhere.
Remember, we need about $3 billion a day of investment into this country to cover our trade deficit...
Sorry, just injecting some sanity into this thread. Until we reduce our trade deficit and these SWFs stop growing exponentially, we need to deal with this responsibly.
A simple fact is that we could deflate the wealth of Exxon by getting away from the use of oil. Developing alternative fuel sources works against global warming, as well as making Western nations less dependent on Exxon and Middle Eastern countries.
So of course, Exxon and Bush will work against meaningful progress on technologies that reduce the use of oil, while making speeches that they are on the environmental bandwagon.
Let's keep it simple. How about the Fed cut?
Why is nobody pointing out the one fact that seems to explain all of this:
THE OIL COMPANIES OWN THE OIL, THEY OWN THE OIL SHIPPING, THEY OWN THE REFINING, THEY OWN THE GASOLINE, THEY OWN THE GASOLINE SHIPPING, AND THEY OWN MOST OF THE GASOLINE STATIONS!
Once you account for the fact that the oil companies are buying oil from other countries at far, far less than $100/bbl, which is still high enough for them to make a profit (I saw somewhere that it costs the Saudis about $1.50/bbl to pull the oil out of the ground). Then they ship it to the US, in tankers which they own, and combine it with what they pulled out of the ground here. Next they place the oil into the refiner's hands. They ARE the refiner, so no actual funds transfer hands. Then the refiner ships it to the gas stations, using either pipelines that they own, or trucks that they own. The gas stations are either getting gouged too, or belong to the oil company.
THIS IS WHY EXXON-MOBIL WAS ABLE TO MAKE MORE IN PROFIT THAN ANY OTHER COMPANY IN HISTORY IN 2006!!!!
Raymond Learsay just doesn't get it ...
Countries are using these Sovereign Wealth Funds to buy energy resources because they know that Peak Oil is here and they have to supply their economies.
Why is China roaming the world buying up natural gas and oil properties? Peak Oil.Korea just announced heavy investments in oil production , why now ?
Our Pols, financial pundits and blogs like this cannnot admit to ever deccreasing oil production in the face off ever increasing demand. It is the end of cheap oil age and the falllout will be ugly, devastating if we don't start plannning for it NOW!
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Can somebody please explain why the market price of crude is skyrocketing yet the price of gasoline at the pump is relatively stable?
EXCELLENT RANT 'RJ',BUT SOME SAY 'YOU ARE MISSING THE POINT'?
I READ ALL THE MEAGER AMOUNT OF GREAT AND INFORMATIVE COMMENTS,EXCEPT (NONE) WERE MENTIONING ANYTHING ABOUT GAS USERS-CONSUMERS ACTUALLY ORGANISING AND CREATING PRESSURE ON ALL THIS FINANCIAL DOMINATION WORLD WIDE BY OIL PRODUCERS.
AS A SINGLE -BUT LONLEY AND UN-NOTICED 'CONSUMER' ,MY INDIVIDUAL(VENT MY ANGER FRUSTRATION) TACTIC HAS BEEN TO 'STAY CLOSE TO HOME' AND RIDE THE SENIOR SHUTTLE AT TWO BUCKS FOR A TRIP TO ANOTHER CITY 70 MILES AWAY. I ALSO OWN ,WITH PRIDE AN ELECTRIC BIKE, WHICH GETS 25 MILES TO A CHARGE,AND AM LOOKING TO CHARGE THIS BIKE WITH MY OWN SOLAR PANELS,WHICH WILL BE PLASTERED ALL OVER MY ROOF.THEN GO 12 VOLT IF NEEDED
FREE ENERGY IS THERE,AND NOW IS THE TIME TO ACT AS AN INDIVIDUAL CONSUMER OF ENERGY,LIKE THE GUY SAID;PLANT YOUR GARDEN-ETC.
IT APPEARS NO ONE ON THIS SITE AND LEARSY READERS ARE REALLY 'COMMIITED' IF THEY DO NOT CONTRIBUTE TO A CONSUMMER ACTION AQUIRING-REAL TIME ITEMS SUCH AS THE ABOVE.
'RJ'? ARE YOU DOING ANY OF THE ABOVE MENTIONED ITEMS,AS AN CONSUMER, TO FIGHT BACK AT BIG OIL?
TAKE A GOOD LOOK IN THE MIRROR AND ASK YOURSELF , AM I AN AVID OIL CONSUMER FIGHTING BACK IN ANY-ALL MANNER,NO MATTER HOW SMALL A GESTURE?
I ACTUALLY FEEL GOOD ABOUT RIDING AND PEDDLING MY ELECTRIC BIKE AND JUST YESTERDAY,MY FELLOW SENIORS(WE NOW HAVE DRAG RACES FOR FUN) HAVE TWO NEW ELECTRIC BIKES IN MY NEIGHBORHO
NO MORE CRY BABIES-WHINNERS,GET CRACKEN AND DO YOUR INDIVIDUAL
"SEC Chairman Christopher Cox has speculated that government investment funds could use the "vast amount of covert information" that their spy agencies collect, making that "the ultimate insider trading tool."
Imagine that...Wal
The whole 'war on terror' scam just keeps getting curiouser and curiouser.
Docsarvais said it right. Theoildrum
This is the start of the Twilight in the Desert and the Long Emergency folks. Learsy would like to pin the blame on gougers with his conspiratorial comments. But he doesn't get it. We are in a royal mess that is going to get messier and all of our lives are going to be impacted with $100 to $200 per barrel oil. It probably won't stop at $200 either. Time to rip out your front lawns and start planting food you can eat.
Price gouging pure and simple. Right before the cold months so we can freeze or go in hock for our heat. It is criminal pure and simple. It should not be allowed, but it is. No one cares about the average person anymore. I think the oil belongs to everyone because it is inside the earth, not on it. Stupid idea, but thats what I think.
Windfall profit tax anyone?
I've often wondered why commodities aren't manipulated more. Say we're producing 100 million barrels of oil per day worldwide. If oil is only 15-20 dollars per barrel, as it was 10 years ago, you could corner the market with a measly $2 billion dollars. That's chump change. At $100 per barrel, you could corner the market by spending $10 billion per day. That comes out to about $3 trillion per year, or just about what we spend at the federal level here in the US alone.
But remember, you don't have to buy every drop of oil for years at a time. You only have to buy as much for as long as necessary to manipulate the price.
It makes me think that Bush's plan to fill the strategic petroleum reserve with an extra 150 million barrels of crude oil was seen by other countries as a power play to drive up the price of oil. Of course, that filling has now halted, so it wouldn't be involved in the current price action. But it makes me wonder if other countries around the world have gotten wise and decided to do the same thing themselves.
From 8 years ago, when oil was trading around $10 (if I recall correctly), oil should be much cheaper than it is now. Assuming a demand growth rate of 2%, over 8 years it compounds to $11.71. Even if you compound at 5% it would be $14.77, and at 10% would be $21.44. From $10 to $98 is 33% per year. I know that prices are set on the margin, but does it really cost that much more to produce the next barrel of oil? Why is it more than $11.71?
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